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The Future of Long-Term LNG Contracts

Author

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  • Hartley, Peter R.

    (Rice University and University of Western Australia)

Abstract

Long-term contracts between exporters and importers of LNG increase the debt capacity of large, long-lived, capital investments by reducing cash flow variability. However, long-term contracts also may limit the ability of the contracting parties to take advantage of profitable ephemeral trading opportunities. After developing a model that illustrates these trade-offs, we argue that increased LNG market liquidity is likely to encourage much greater volume and destination flexibility in contracts and increased reliance on short-term and spot market trades. These changes would, in turn, reinforce the initial increase in market liquidity.

Suggested Citation

  • Hartley, Peter R., 2014. "The Future of Long-Term LNG Contracts," Working Papers 14-022, Rice University, Department of Economics.
    • Handle: RePEc:ecl:riceco:14-022
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    File URL: http://economics.rice.edu/rise/working-papers/future-long-term-lng-contracts
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    Cited by:

    1. Abdullahi Alim & Peter R. Hartley & Yihui Lan, 2018. "Asian Spot Prices for LNG and other Energy Commodities," The Energy Journal, , vol. 39(1), pages 123-142, January.
    2. Chyong, C-K., 2019. "Challenges to the Future of European Single Market in Natural Gas," Cambridge Working Papers in Economics 1918, Faculty of Economics, University of Cambridge.
    3. Vitor Miguel Ribeiro & Gustavo Soutinho & Isabel Soares, 2023. "Natural Gas Prices in the Framework of European Union’s Energy Transition: Assessing Evolution and Drivers," Energies, MDPI, vol. 16(4), pages 1-46, February.
    4. Juhan Kim & Jinsoo Kim, 2018. "Optimal Portfolio for LNG Importation in Korea Using a Two-Step Portfolio Model and a Fuzzy Analytic Hierarchy Process," Energies, MDPI, vol. 11(11), pages 1-18, November.
    5. Omoregie, Uyiosa, 2019. "Value Creation in a 'Non-Producing' Enterprise," SocArXiv h2mv3, Center for Open Science.
    6. Chi Kong Chyong, 2019. "European Natural Gas Markets: Taking Stock and Looking Forward," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(1), pages 89-109, August.
    7. Baba, Amina & Creti, Anna & Massol, Olivier, 2020. "What can be learned from the free destination option in the LNG imbroglio?," Energy Economics, Elsevier, vol. 89(C).
    8. Oglend, Atle & Kleppe, Tore Selland & Osmundsen, Petter, 2016. "Trade with endogenous transportation costs: The case of liquefied natural gas," Energy Economics, Elsevier, vol. 59(C), pages 138-148.
    9. Hupka, Yuri & Popova, Ivilina & Simkins, Betty & Lee, Thomas, 2023. "A review of the literature on LNG: Hubs development, market integration, and price discovery," Journal of Commodity Markets, Elsevier, vol. 31(C).
    10. Sangseop Lim & Chang-hee Lee & Won-Ju Lee & Junghwan Choi & Dongho Jung & Younghun Jeon, 2022. "Valuation of the Extension Option in Time Charter Contracts in the LNG Market," Energies, MDPI, vol. 15(18), pages 1-14, September.
    11. Atle Oglend & Petter Osmundsen & Tore Selland Kleppe, 2015. "Trade with Endogenous Transportation Costs: The Value of LNG Exports," CESifo Working Paper Series 5222, CESifo.
    12. Amina Baba & Anna Creti & Olivier Massol, 2020. "What can we Learn from the Free Destination Option in the LNG Imbroglio ?," Working Papers hal-03181028, HAL.
    13. Sophia Rüster, 2015. "Financing LNG Projects and the Role of Long-Term Sales-and-Purchase Agreements," Discussion Papers of DIW Berlin 1441, DIW Berlin, German Institute for Economic Research.
    14. Hendalianpour, Ayad & Liu, Peide & Amirghodsi, Sirous & Hamzehlou, Mohammad, 2022. "Designing a System Dynamics model to simulate criteria affecting oil and gas development contracts," Resources Policy, Elsevier, vol. 78(C).
    15. Chi-Kong Chyong, 2015. "Markets and long-term contracts: The case of Russian gas supplies to Europe," Cambridge Working Papers in Economics 1542, Faculty of Economics, University of Cambridge.
    16. repec:osf:socarx:h2mv3_v1 is not listed on IDEAS
    17. Hamed Nikhalat-Jahromi & Panagiotis Angeloudis & Michael G H Bell & Robert A Cochrane, 2017. "Global LNG trade: A comprehensive up to date analysis," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 19(1), pages 160-181, March.
    18. Anne Neumann & Sophia Rüster & Christian von Hirschhausen, 2015. "Long-Term Contracts in the Natural Gas Industry: Literature Survey and Data on 426 Contracts (1965-2014)," Data Documentation 77, DIW Berlin, German Institute for Economic Research.
    19. Nikhalat-Jahromi, Hamed & Bell, Michael G.H. & Fontes, Dalila B.M.M. & Cochrane, Robert A. & Angeloudis, Panagiotis, 2016. "Spot sale of uncommitted LNG from Middle East: Japan or the UK?," Energy Policy, Elsevier, vol. 96(C), pages 717-725.
    20. Cho, Jaeyoung & Lim, Gino J. & Kim, Seon Jin & Biobaku, Taofeek, 2018. "Liquefied natural gas inventory routing problem under uncertain weather conditions," International Journal of Production Economics, Elsevier, vol. 204(C), pages 18-29.

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    JEL classification:

    • F0 - International Economics - - General

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